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Gregory Frye
By
June 09, 2020

5 Avoidable Reasons New Cannabis Businesses Fail

businessman with hands on face looking at downward trending chatIt’s arguably the most infamous business statistic of them all: 90 percent of startups fail within their first year.

Cannabis businesses are subject to the same pitfalls as any other industry – not understanding the market, poor business plans, lack of financing, expanding too fast, etc.

But what about the biggest areas of failure specific to the cannabis industry? 

As we move past the heartbreaking and sometimes epic failures of the “Green Rush” era and into a more clear-minded, methodical industry – an industry guided by cannabis education on every front – what are the big lessons-learned from those doomed enterprises that didn’t make it or those that are now just barely surviving?

1) Complacency After Winning A License

Cannabis operators typically need a license to cultivate, manufacture, distribute, and sell cannabis products.

The licensing infrastructure differs from one market to the next. Sometimes, the licensing process can be extremely competitive and expensive.

Jay Czarkowski of Canna Advisors knows this process quite well. He and his team have helped industry hopefuls win hundreds of local and state-level cannabis licenses across the U.S.

So what’s one of the biggest mistakes he sees groups make after winning a license? Thinking the hardest part is over.

“Most people pretty much universally always underestimate how much work it’s going to be after they’ve got the license, and how much money they're going to need. So a lot of groups win the license, and they’re actually ill-prepared to move forward,” Czarkowski reveals.

Money and real estate are two big hurdles that trip people up after winning a license, Czarkowski explains, even though the license application process is supposed to check for these things. 

“The amount of time and effort that it takes to build a business is a lot of work. A lot of people think, ‘Marijuana means money up to my elbows,’ but no. Most of these businesses fail, just like any other industry.”

business woman showing colleagues a report2) The Struggle With Compliance & Regulations

Cannabis is an industry regulated like no other. The fact that the plant is still classified as a Schedule I controlled substance at the federal level makes the situation even more complex. 

Operators are forced to contend with a gauntlet of ever-changing compliance hurdles, which can and do eat into their profit margins. How much depends on the preparation levels of management and their teams.

What’s more, even the most innocent of compliance mistakes by a retail employee, for example, can result in costly fines, licensing suspensions, and other punitive actions.

Maureen McNamara specializes in this area, having trained thousands of cannabis employees and entrepreneurs across the U.S. through her Sell-SMaRT course.

“Our job is to translate hundreds of pages of rules into something understandable for the dispensary worker, to ensure they’re selling medicine and cannabis compliantly to patients and adults,” McNamara says.

“Even owners and compliance directors have learned something new, something they didn’t realize and wanted to implement,” she notes. 

McNamara likes to quote one of her favorite cannabis clients: “We’re in the compliance business. If we do that right, then we’re lucky enough to sell cannabis.”

Whether a state government’s increased scrutiny of the industry is fair or not, cannabis entrepreneurs must be willing to go above and beyond to keep the industry – and their business – thriving.

3) Inadequate Employee Training & Onboarding

The most successful cannabis companies get this right, and unfortunately, they seem to be in the minority.

In June 2018, cannabis analytics firm Headset reported that 58% of dispensary workers did not make it past their first two months, and 40% didn’t even reach one month.

When more than half of a company’s new hires aren’t panning out, the results can be disastrous.

In a lot of cases, this high turnover stems from weak training and onboarding processes, which can impact the entire business.

Imagine being hired for a new job and getting dropped into a ‘sink or swim’ environment with little to zero support. That is rarely going to work out well for the employee or employer.

professional men and women at a meeting4) Neglected Company Culture 

Creating an environment where people enjoy working, be it remotely or in the office, is another important component to employee retention.

Solid training, onboarding, and development opportunities are a big part of creating successful culture. However, a good company culture also focuses on shared values and celebrating those values as a team.

Liesl Bernard, who brings 20+ years of executive search and staffing to cannabis through CannabizTeam, can’t emphasize company culture enough – and how many cannabis operations are missing the mark here.

“Culture is my biggest passion in working with any company…to help them build a team that also fosters a healthy culture. People spend so much time at work, and unless you make it a fun environment where you can empower and encourage and help people grow, they’re not going to stick around,” Bernard says. 

“In general, I don’t see a lot of cannabis companies with a great culture because they’re all so concerned about growing and dealing with the obstacles that they’re facing on a day-to-day basis, but they haven’t taken the time to really nurture culture within their organization.”

5) Leadership Knowledge Gaps

As with any industry, cannabis has attracted leaders and managers of all types. 

Some know almost everything about the cannabis plant and industry yet understand very little about actually running a business or managing teams. Others have a lot of business experience but know next to nothing about the cannabis plant, products, or culture.

A few have managed to cultivate knowledge and experience in all of these areas, finding a lot of success along the way.

Ari Sherman of Evo Hemp, which specializes in hemp food products, is a great example of this. Filling those knowledge gaps for himself, his team, and potential customers has been a driving factor for success every step of the way.

“There are still a lot of people across the globe that do not really have an understanding of what hemp products are, what CBD products are, and it’s incredibly important for entrepreneurs especially to get educated as much as possible,” Sherman advises, emphasizing that even with hemp foods – like cannabis – there is still a lot of stigma and knowledge gaps.

“Education is essentially our ammo when we go into retailers, consumers, or really anyone that may have pushback on what we’re doing. The education is how we get things done.”

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